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Arch Capital Stock Trades Above 50-Day SMA: Time to Buy?

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Arch Capital Group Ltd. (ACGL - Free Report) has been trading above its 50-day simple moving average (SMA), signaling a short-term bullish trend. Its share price as of Monday was $95.28, down 18.2% from its 52-week high of $116.47.

The 50-day SMA is a key indicator for traders and analysts to identify support and resistance levels. It is considered particularly important as this is the first marker of an uptrend or downtrend. 

New business opportunities, rate improvement, growth in existing accounts and a solid capital position are driving this leading specialty P&C and mortgage insurer. 

ACGL Stock Price Movement vs. 50-Day Moving Average

Zacks Investment Research
Image Source: Zacks Investment Research

Shares of ACGL have gained 2.7% year to date compared with the industry and the Finance sector’s growth of 14% and 2.2%, respectively. Shares of ACGL have outperformed the Zacks S&P 500 composite’s decline of 4% in the same time frame. With a market capitalization of $35.8 billion, the average volume of shares traded in the last three months was 1.9 million.

ACGL Stock Price vs Industry, Sector & S&P 500 YTD

Zacks Investment Research
Image Source: Zacks Investment Research

Average Target Price for ACGL Suggests an Upside

Based on short-term price targets offered by 16 analysts, the Zacks average price target is $113.38 per share. The average suggests a potential 19% upside from Monday’s closing price.

Bearish Analyst Sentiment on ACGL

The Zacks Consensus Estimate for 2025 earnings has moved down 3.1% in the past 30 days, while the same for 2026 has moved down 0.8% in the same time frame. 

Favorable Return on Capital

Return on equity in the trailing 12 months was 19%, better than the industry average of 8.3%. This highlights the company’s efficiency in utilizing shareholders’ funds. 

Also, the return on invested capital (ROIC) has been increasing over the last few quarters as the company raised its capital investment over the same time frame. This reflects ACGL’s efficiency in utilizing funds to generate income. ROIC in the trailing 12 months was 6.9%, better than the industry average of 6.4%.

Factors Favoring ACGL Stock

Widespread operations, coupled with a compelling product portfolio, provide meaningful diversification and earnings stability to ACGL. 

Arch Capital has made significant efforts to boost its inorganic growth through prudent acquisitions. These, in turn, aided international expansion, enhance operations and diversify business at attractive risk-adjusted returns. 

Solid performances at the Insurance as well as the Reinsurance business are well complemented by the Mortgage Insurance. Premiums should benefit from new business opportunities, rate increases, and growth in existing accounts.

Investment results are set to benefit from a growing base of invested assets, driven by improving cash flows.

Sufficient liquidity, coupled with low leverage, has helped ACGL strengthen its balance. It also shields it from market volatility and supports growth initiatives. 
Notably, its free cash flow conversion has remained more than 85% over the last many quarters, reflecting its solid earnings.

Growth Projection for ACGL Shares

The Zacks Consensus Estimate for 2025 earnings is pegged at $8.27 per share, suggesting a decrease of 10.9% on 13.9% higher revenues of $18.9 billion. The consensus estimate for 2026 earnings per share is $9.69, suggesting an increase of 17.2% on 8.9% higher revenues of $20.6 billion. 

The long-term earnings growth rate is projected to be 2.9%. 

ACGL Shares are Expensive 

ACGL shares are trading at a price-to-book multiple of 1.79, higher than the industry average of 1.64.

Zacks Investment Research
Image Source: Zacks Investment Research

It is attractively valued compared with Fidelity National Financial, Inc. (FNF - Free Report) and W.R. Berkley Corporation (WRB - Free Report) but is expensive compared to CNA Financial (CNA - Free Report) .

Parting Thoughts on ACGL

Arch Capital boasts a strong product portfolio and has a solid track record of premium growth. Both the Insurance and Reinsurance segments should continue to witness significant growth from increases in most lines of business. A robust capital position over the years reflects its financial flexibility. 

However, given the premium valuation, a decline in 2025's bottom-line projection and bearish analysts’ sentiment, rising expenses negatively impact the company’s overall results and keep us cautious about this Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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